United States Fidelity Co. v. First State Bank , 116 Miss. 239 ( 1917 )

Ethridge, J.,

delivered the opinion of the court.

(After stating the facts as above). This appeal presents the following questions for decision in this case: First. Did the surrender of the notes held by G-. W. Cole to the First State Bank as a payment on the bonds constitute a payment in law, or is he liable for the amount of said notes? Second. Is the United States Fidelity & Guaranty Company entitled to subrogation' to such liability as may exist against Mr. Cole by virtue of its payment of the funds due to the county? Third. Is the National City Bank liable to the United States Fidelity & Guaranty Company under its contract for the amount paid by the United States Fidelity & Guaranty Company, or any part thereof, and, if for any part what part?

It appears from the evidence that the board of supervisors and county treasurer turned the bonds of the county over to the First State Bank for the purpose of delivering the bonds to Cole and collecting the money from Cole for the benefit of district No. 1 of Calhoun county; said First State Bank being then a duly qualified depository. It appears that the money and payment made by Cole was paid without having obtained a “received” warrant from the chancery clerk under section 352 .of the Code but that the receipt given by the depository was made out in duplicate as required by statute. It further appears in the evidence that the county treasurer gave his receipt for the money on the statement that Cole had paid the money into the depository.

We think it is the duty and obligation of bond buyers to pay for bonds in actual money, in the absence of an express statute authorizing the taking of something other than money in payment of bonds. Under the laws of this state, road funds and road bond funds are special funds, and can only be used in the payment of specified warrants, and do not constitute a part of the county’s general funds. We think that nothing can be accepted in lieu of cash, except warrants regularly issued against said fund when outstanding. Where, however, a check is accepted in payment and is actually paid in due course, it will be treated as being a payment of the debt when the money is collected and paid into the proper treasury or depository of the county. Our court has passed upon the question of payment in two recent cases involving the question as to whether an agent, authorized to collect money for a principal, is authorized to take anything other than money in payment. In the case of Parodi et al. v. State Savings Bank of Jackson, 113 Miss. 361, 74 So. 280, the court held that a bank, having a draft for collection is required to take money in payment of such draft and if it take anything other than money, in this case a check, which check was not paid when presented, that the bank was not protected, even though the party giving the check was agent of the drawer of the draft and was making the final settlement of the agency with his principal. In that case the person giving the check, at the date of the giving thereof, had funds in the bank upon which the check was drawn, but before the check was presented the bank failed and the check was not paid. In the case of Bank of Shaw v. Ransom, 112 Miss. 440, 73 So. 280, this court held that in collecting the cheek the bank is the agent of the depositor of the claim for collection, and that it was the duty of the collecting bank to collect in money, citing 7 Corpus Juris, 614, 615, and authorities cited therein.

' We think therefore, that the depository was not authorized to take the notes held by Mr. Cole as payment for the bonds., We think, however that, the payment of three thousand dollars in August was understood by all parties to be a payment on the bond purchase, and that, though a note was taken at said time, it was not intended as a loan of money to the bank, and was not so understood by any of the parties to the transaction, and that this constituted pro tanto a payment on the hond issue. It appears that Mr. Cole paid one item of one thousand dollars in cash and another payment by check, which was collected, of four thousand, four hundred and ninety-three dollars and twenty cents, making a total payment by Mr. Cole of eight thousand four hundred and ninty-three dollars and twenty cents and that he should be given credit for said amount on the bond purchase, but should be required to pay the difference to the appellant, as it has paid this amount to the county and road district, and is entitled to subrogation against the purchaser to this extent. If the parties signing the notes to Cole had authority to secure the loan for the First State Bank, and had authority to hypothecate the collateral to Cole, or if the First State Bank ratified the transaction and used Cole’s money, then the collateral should be returned to Cole, or such money as was collected on such notes should be paid Cole from funds of the bank. The undertaking of the Guaranty Company was to guarantee the handling of funds paid into the depository, and as these funds never were, in law, paid by Cole, the appellant is entitled to recover them as against Mr. Cole.

In reference to the third proposition, as to liability of the National City Bank to the United States Fidelity & Guaranty Company under its contract, we find that section 5136 of the Revised Statutes of the United States, defining the powers of national banks, provides, first, that it has power to adopt and use a corporate seal; second, to have succession for the period of twenty years, unless it dissolve as therein provided; third, to make contracts; fourth, to sue and be sued in any court of law" or equity as fully as natural persons; fifth, to elect or appoint directors, and by its board of disectors to appoint a president, vice president, cashier, and other officers, and define their duties, and to dismiss such officers and appoint others to fill their places; sixth, to prescribe, by its board of directors, by-laws not inconsistent with law, etc.; seventh, “to exercise by its board of directors, or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking, by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt, by receiving deposits, by buying and selling exchange, coin, and bullion, by loaning money on personal security, and by obtaining, issuing, and circulating notes according to the provisions of this title. But no association shall transact any business except such as is incidental and necessarily preliminary to its organization, until it has been authorized by the Comptroller of the Currency to commence the business of banking.”

It is settled by a long list of authorities that a national bank cannot be held liable for acts in excess of its charter powers, and that such bank is not estopped to plead ultra vires in defense of any unlawful contract; that it had no power to lend its credit by guaranteeing the letter of credit or making and indorsing notes or drafts for the accommodation of other persons. See 5 Fed. Statutes Annotated, p. 82, authorities there cited. It is equally well settled that a bank that executes a contract even beyond its powers, but receives funds or property by virtue of such contract, is liable to the extent that it has received funds or property or has received benefits from such ultra vires contract. See Citizens’ National Bank v. Appleton, 216 U. S. 196, 30 Sup. Ct. 364, 54 L. Ed. 443; First National Bank v. Anderson, 172 U. S. 573, 19 Sup. Ct. 284, 43 L. Ed. 558; Emmerling v. First National Bank, 97 Fed. 739, 30 C. C. A. 399; Logan County National Bank v. Townsend, 139 U. S. 67, 11 Sup. Ct. 496, 35 L. Ed. 107; American National Bank v. National Wall Paper Co., 77 Fed. 85, 23 C. C. A. 33; Hutchins v. Planters’ National Bank, 128 N. C. 72, 38 S. E. 252; First National Bank v. Henry, 159 Ala. 367, 49 So. 97.

In Citizens’ National Bank v. Appleton, 216, U. S. 196, 30 Sup. Ct. 364, 54 L. Ed. 443, the court held that a national bank which, in pursuance of a previous agreement with its debtor that he will apply to the discharge of the indebtedness a part of tbe proceeds of a loan to be obtained by bim from another bank, requests the making of such loan and guarantees its payment at maturity, must account to the loaning bank for the sum which it receives for its own use in execution of the agreement, even though such guaranty is beyond its powers under the National banldng statutes. In First National Bank v. Anderson, 172 U. S. 573, 19 Sup. Ct. 284, 43 L. Ed. 558, the court held that where a national bank, which has purchased notes that it holds as collateral when it has been directed to sell them to a third person, may be held liable for their value as for a conversion, even though it is not within the powers of the bank to sell them as the owner’s agent. In Logan County National Bank v. Townsend, 139 U. S. 67, 11 Sup. Ct. 496, 35 L. Ed. 107, the supreme court of the United States held that, where property is transferred under a contract which is merely malum prohibitum, the party receiving may be made to refund, to the person from whom it has received the property for the unauthorized purpose, the value of that which it has actually received. “A national bank having the right to hold bonds until reimbursed for its advances, but being bound, upon implied contract, to return them, on demand, when repudiating as illegal the agreement under which it got them, is not exempt, by reason of anything in the National Banking Act, from liability, but is liable for the difference between the price it paid for them and their value at the time it refused, upon demand, to return them in pursuance to the contract made by it for their purchase.” ' In Wyman v. Wallace, 201 U. S. 230, 26 Sup. Ct. 495, 50 L. Ed. 738, the United States supreme court held that where a national bank gave notes, when embarrassed by pressing demands, in part consideration of the assumption by the payee of all its outstanding obligations, secured by a pledge of all its assets remaining after turning over cash and such bills receivable as the payee would accept at par, are valid obligations, which can be enforced against the stockholders after voluntary liquidation. In Poppleton v. Wallace, 201 U. S. 245, 26 Sup. Ct. 498, 50 L. Ed. 743, it was held that such obligations were valid obligations, and may be enforced after voluntary liquidation against the stockholdiers who had voted against liquidation. It will be seen, from the .Revised Statutes above quoted, from, that a national bank has undoubtedly the right to receive deposits and make appropriate contracts with reference thereto. It has the power to make a bond to secure deposits. 3 Mitchie on Banks and Banking, p. 2026.

There seems to be no restriction in the act itself, nor can we see any reason to imply any restrictions, that the bank may make any contract with reference to the re-receipt of deposits agreeing to handle the deposits in a certain way and to pay them out only in a certain prescribed way necessary for the'protection of the parties dealing with it, and we are of the opinion that its contract in this case, by which it agreed to' receive the deposits of money paid to the First State Bank as a public depository, and to cause the certificates of deposit to be assigned to the Guaranty Company, was valid, and was 'not beyond its powers. It appears in the testimony that the cashier of the National City Bank, in discussing this proposition with the agent of the First State Bank, stated that he would rather borrow money at four and one-fourth per cent than to loan money at eight per cent. This statement indicates that the bank’s applications for loans wére' in excess of funds available for loan purposes. Of course, it is necessary for a bank to have funds to loan its customers, when needed, to retain them. It is also one of the methods by which banks make money, borrowing money at a smaller rate and loaning it at á higher rate.. In this way it also serves the interests of the public in receiving money, which depositors do not need, or do not care personally to handle, by way of deposits, and loading it out at interest to people who desire to borrow, and we think that that part of the contract between the National City Bank and the Guaranty Company that provided for the method of handling this fund and by which the bank undertook to see or agreed would be done was not beyond its powers. •

It having undertaken by contract to cause that money sent to it by the First State Bank received under the depository bond should be handled in a particular way, calculated to safeguard the interest of the surety company, without serious inconvenience to the National City Bank or to the First State Bank, we think it cannot escape obligations which it imposed upon itself in' this regard on the mere theory that it had not received notice that the second bond issue had been made, nor notice that the funds received by it from the First State Bank were in reality funds belonging to the road district. In assuming this obligation, it assumed an obligation to keep in touch with the affairs of the depository, and it was an easy matter for it to learn from the public records that this bond issue had been sold and the money paid into the depository. It was the duty of the National City Bank under the facts in this case, when it received remittances from the First State Bank, to determine the character of the funds so received, whether they were public funds or private funds of said bank. We think there is no ultra vires act with reference to this part of the agreement.-

We do not think the National City Bank’s liability is limited to profits it may have made out of this transaction. Indeed, the transaction might have been a losing one to the bank, and still it would be liable for the moneys actually received. It having imposed a duty upon itself to deal with this fund in a specific way, it cannot escape liability by pleading ignorance of facts it should have known under its contract, and could easily have ascertained by reasonable diligence. We think the National City Bank is liable to the Guaranty Company to the extent of the funds that actually passed through its channels, to wit, the amount of seven thousand four hundred ninety-three dollars and twenty cents, and for attorney’s fees which the Guaranty Company had to pay by reason of the default of the First State Bank and of the National City Bank in not carrying out this contract as agreed to.

In order that the court below may not be hampered in administering the rights’ between all the parties to this litigation in accordance with the views expressed in this opinion, the ease is reversed on both direct and cross appeals; the costs of appeal to be taxed against the appellees.

Reversed and remanded.